A New Greek Tragedy: Exit From The Euro?

Is Greece a failed state? Somehow Mr. Panagiotis Pikramenos, just appointed prime minister, does not seem to convey the sense that he will be more than a caretaker leader until the next batch of elections on June 17. If Greece keeps holding elections with this frequency, it will appear as though it's trying to emulate the last days of the Weimar Republic. And Germany does not appear to be in a mood for additional bailouts to rescue Greece. So with the failure of its political parties to form a ruling coalition, Greece looks to be heading into the final act of traditional Athenian tragedy known as exodus. In this instance, an exodus would mean abandoning the euro and absorbing the brutal buffetting that, so proponents of leaving the euro claim, would be painful but temporary. Having left the euro, Greece would be free to return to the good, old drachma, enjoying the benefits of a devalued currency to increase its exports even if inflation and interest rates go up.

So far, Greece has been holding or, to put it more precisely, trying to hold, its Western European neighbors—mainly Germany—hostage. Greece is exercising an outsized influence. The painful austerity measures insisted upon by German chancellor Angela Merkel have helped usher in the ouster of French president Nicolas Sarkozy, whose successor François Hollande is championing growth. Which is fine. Growth is a legitimate way to shrink state debt. But in Hollande's case, it may be wondered precisely what kind of growth he has in mind. During the elections he stated he would increase the size of the state sector, which would reduce unemployment but not necessarily improve growth figures. In fact, such measures might prove inimical to it.

Greece has also shaken up Merkel's own hold on power. In recent state elections in North Rhine Westphalia, her party experienced a decisive defeat, scoring just under 30 percent while the Social Democratic Party garnered 39 percent. The Free Democratic Party, which espouses a hard-line policy toward Greece, received 8.6 percent, suggesting that it may have weathered its recent troubles and will return to the Bundestag. But Merkel would not be able to put together a new coalition with the Free Democrats in 2013. A grand coalition would be a more likely result. The German economy is bustling along with exports to Asia—BMW's profits were up 18 percent in the first quarter of this year. Unions in Germany are pressing for higher wages, which they will probably get. Unemployment is down to 7 percent.

But Germany is not adopting a "what, me, worry?" attitude toward Greece. Nor are its neighbors. European Union commission president Jose Manuel Barroso, for example, is warning, "All the obligations that Greece and European Union members have assumed must be respected. The truth is that there is no easier path." Opinion polls suggest the Greeks are like Americans: they want the euro but not the fiscal cutbacks, just as Americans want all the goodies that Washington can distribute but don't want to have to pay taxes for them. Of course, America is nowhere near the kind of omnicompetent state that the Greeks have constructed and feasted upon over the past decade or so.

For both the Greeks and the Germans, the poker game will continue in the run-up to the new Greek elections in June. Perhaps Merkel and her entourage have already written off the Greeks and are simply waiting for the denouement. But even that might not save the euro. How contagious is contagion? Spain, Portugal and Italy might be next. But for Germany, which has been battling to save the euro, its disappearance might not even be that big a deal. It might strengthen its position in Europe further. Already, its economy seems fairly emancipated from the recession in the rest of Europe as it feverishly exports to Asia. Its neighbors might experience a different fate. France is having trouble exporting goods. The stage could be set for the rise of a new Teutonic power in the center of Europe. If Europe resents Germany now, it might come to look upon the current age as a golden era of enlightenment compared to what followed it.